Hedging volatility of differences between sell and purchase prices in the Italian energy market

Firm transmission rights (FTRs) are issued by TSOs and can be bought by market operators in order to hedge the risk connected to the volatility of price differentials in a zonal market. FTRs are typically defined w.r.t. a couple of zones; their owners have the right or the obligation (depending on the nature of the title) to receive back from the TSO an amount of money equal to the difference between the prices in the "downstream" and "upstream" zones times the quantity object of the right. The aim of the paper is to assess these consequences, in particular concerning the issue of revenue sufficiency and the possibility that generators with market power owning FTRs may dispose of enhanced gaming opportunities in the Italian energy market